INVESTMENT FLOWS THE OTHER WAY AROUND

Foreign direct investment (FDI) can contribute significantly to development and it is increasingly seen as the most important link in the development process by many policy makers. Since 1992 FDI has been the largest source of inflows into developing countries, but it has been highly concentrated within a small group of countries such as China, India, Brazil and Mexico. Countries in sub-Saharan Africa, the most in need of capital, get very little FDI. Moreover, increasing amounts of FDI are used for mergers and acquisitions where a foreign firm acquires an ongoing domestic operation, therefore not adding to productive capacity or bringing about technology transfer.
FDI inflows are accompanied by large outflows in the form of profit repatriation. In sub-Saharan Africa, for example, the average rate of return on FDI is between 24% and 30% and the inflow of funds through new FDI is currently exceeded or matched by an outflow of funds as profit remittances on existing FDI.